Natural resources are anything that is collected in raw form or mined, such as gold, coal or lumber. There are many strong reasons for investing in natural resources. They make up part of almost every product available, and the world population is consuming more and more.
A few of the reasons to invest in natural resources:
• In developing countries, incomes are rising creating a new middle class. This is causing a drive for basic consumer goods. The demand for building materials, precious metals and oil increases, which normally leads to rising prices for these resources. The global population growth is also fueling the demand for electricity, oil, housing and infrastructure. For more information on electricity, check out http://www.compareelectricratesintexas.com/electricity-terms-glossary.html.
• The need for infrastructure in the developing world is causing a demand for lumber, gravel, steel and other material for building public works and roads. Population growth and increasing urbanization is fueling the construction business. The growth rate of emerging economies is 6 percent until 2014. This is a manageable rate and good for commodities.
• Urbanization creates the demand for natural resources because the people moving to the cities want refrigerators, air conditioners and processed foods, among other things.
• Governments are another force that is increasing the demand for natural resources. Nations are buying natural resources round the world to ensure they have a constant supply of the necessary raw materials. The buying is often in an open market, but it is also sometimes arranged by political agreements.
• Natural resources can also be a Store of Value investment. This means the resource can be stored and retrieved over time. This is useful during times of inflation. Gold, silver, art, currency and real estate are the most common Store of Value investments, but natural resources, especially the metals, will always have value in any economy.
• There are huge natural resource deposits in developing markets such as the former Soviet Union, Latin America and Brazil.
There are several options for investing in natural resources.
• For small investments in precious metals, buying directly is the usual way. This kind of investment will not work with natural gas and timber.
• Options and Futures are a good way for experienced investors to buy natural resources, but beginners should get financial advice before investing in this way.
• Exchange-traded funds (ETF) are available for natural resources. Each one is focused on a particular aspect, so the investor needs to find the ETF that suits his or her needs.
• Investors can buy stocks directly without an ETF. These include forestry stocks, mining stocks and oil exploration stocks, among other things. The two types of natural resource companies include majors and juniors. Majors are diversified and include extraction to processing and market sales. They also sometimes offer a dividend. Juniors offer no dividend but can give large profits if the natural resource increases in value.
Today, unlike 20 years ago, investors can easily directly invest in natural resources. For example, investors can buy shares in a coal mining company, buy coal ETFs, buy a shipment of coal to store or trade coal futures.